Advice will cost more, warn planners

Low and middle-income earners will be shut out of the financial advice market if legislation tabled yesterday is adopted in its current form, large financial planner networks have warned.

The federal government yesterday published the second tranche of its financial reform legislation, which is part of a package of changes designed to improve the quality of advice in Australia.

The government conceded that the new rules may lead to a rise in compliance costs and that “in the short term the cost of advice may increase," but declined to be specific.

The Financial Services Council, the peak lobby group for the wealth management industry, estimated the implementation costs of the reform package to be more than $100 million.

Wealth managers and planner networks had been hoping the proposed laws would enable advisers to give clients help on specific issues, rather than forcing planners to provide only costly, holistic advice relating to all a client’s financial matters.

But the FSC said that the wording of the legislation did not provide enough certainty to allow planners to offer basic, or so-called scaled advice and still meet a best-interests test to clients.

“Our reading of the legislation and our legal advice leads us to believe we won’t be able to deliver scaled advice," said FSC chief executive
John Brogden
. “The best interest test doesn’t provide enough certainty for consumers and advisers about the rules. It doesn’t create an opportunity for the middle market to obtain advice."

The FSC is concerned that planners will be required to give expensive, high-level advice in order to determine that a client might only need basic help.

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The organisation is particularly concerned that even after an adviser has met a number of set criteria in assessing a client’s circumstances, they must still “take any other step that would be reasonably regarded as being in the best interest of a client".

The best interests test has been one of the most hotly debated parts of the legislation in recent weeks.

The government has proposed to reduce the number of specific steps a planner must take in order to make sure they have acted in the best interest of a client from about nine to six.

Industry Super Network executive manager
David Whiteley
said it was critical that planners take responsibility for narrowing the scope of any advice. “When a financial planner agrees to limit the advice, that must be in the client’s best interests," Mr Whiteley said.

It is expected that the legislation will be referred to a parliamentary joint committee for review.

The PJC headed by Bernie Ripoll, the Labor member for Oxley in Queensland, is already scrutinising the first tranche of the “Future of Financial Advice" reforms as well as the proposed introduction of low-cost, no-frills super funds, known as MySuper.

Besides the best interests test, the second tranche of the legislation includes the proposed ban on commissions and volume-based payments.

The Financial Planning Association welcomed the legislation, saying it was pleased that the proposed law no longer required financial planners to consider the entire range of available products before recommending a particular investment to clients.

“As a whole, the FPA believes that the reforms announced in FoFA Tranche 2 are supportive of the financial planning profession, our members and all Australians," said FPA chief executive Mark Rantall.

Mr Whiteley of ISN concurred.

“It will require financial planners, irrespective of their employer, to provide advice to clients which is impartial," he said.

The FPA said it was pleased that planners would not be forced to follow the whole six-step best interests regime when recommending basic banking products.

For products such as deposits, facilities for making non-cash payments and traveller’s cheques, advisers will only need ask a limited number of questions.

Mr Whiteley also congratulated the government on the passing of legislation to raise the superannuation guarantee to 12 per cent from 9 per cent in the House of Representatives.

The advice industry is still awaiting a third set of rules, which will govern the provision of intra-fund advice, the role of accountants in advising self-managed super funds and the licensing of auditors by the Australian Securities and Investments Commission.